Corporate Governance and the Cost of Debt: Evidence from Director Limited Liability and Indemnification Provisions

We find that firms that provide limited liability and indemnification for their directors enjoy higher credit ratings and lower yield spreads. We argue that such provisions insulate corporate directors from the discipline from potential litigation, and allow them to pursue their own interests by adopting low-risk, self-serving operating strategies, which coincidentally redound to the benefit of corporate bondholders. Our evidence further suggests that the reduction in the cost of debt may offset the costs of directorial shirking and suboptimal corporate policies occasioned by this insulation, which may explain why stockholders have little incentive to rescind these legal protections

Are Bond Covenants Priced?

In this paper we ask the empirical question are bond covenants priced? Consistent with the Costly Contracting Hypothesis (CCH) developed by Smith and Warner (1979), we find that they are. We document a negative relation between the promised yield on corporate debt issues and the presence of covenants. We also find that loans made to high-growth firms are more likely to include restrictive covenants than loans made to low-growth firms. We show that the inclusion of a covenant varies systematically with macroeconomic factors as well as with supply-side factors, especially the identity of the lending institution. Finally, we show that consistent with the CCH, firms that elect to issue private rather than public debt are smaller, have greater growth opportunities, less long term debt, fewer tangible assets, and include more covenants in their debt agreements. An important byproduct of our analysis is to demonstrate empirically that the decision to include a covenant and the corresponding promised yield are determined simultaneously. Consequently, statistical models that ignore this simultaneity in analyzing the effects of covenants, like single-equation probit models, are misspecified and generate unreliable statisticsAgency Costs, Costly Contracting, Debt Covenants

The Effects of Fatigue on Balance in Individuals with Parkinson\u27s Disease: Influence of Medication and Brain-Derived Neurotrophic Factor Genotype

Background and Purpose: The purpose was to investigate the effects of fatigue on balance in individuals with Parkinson’s disease (PD). Because falls in this population can have deleterious consequences, it is important to understand the influence of fatigue and PD medications on balance. Additionally, since brain-derived neurotrophic factor (BDNF) has been shown to be related to motor performance, we explored its role in balance fatigue. Participants: 27 individuals (age= 65.4±8.1; males= 14, females= 13) with neurologist-diagnosed PD. Of the 27, 13 were genotyped for BDNF as Val/Val, 11 as Val/Met, 2 as Met/Met, and one refused genotyping. Methods: Participants were tested twice, first on medication and second off medication, one week apart. On both days, participants completed the following tests before and after a fatiguing condition: mini-Balance Evaluation Systems Test (mini-BESTest), computerized dynamic posturography (sensory orientation and motor control), functional reach, and gait spatial-temporal parameters at preferred gait speed across an instrumented walking mat. To address the primary aim of the study, a 2 (condition: pre and post) X 2 (medication: on and off) factorial ANOVA was performed for each outcome variable in each of the following domains: 1. anticipatory postural response; 2. adaptive postural responses; 3. Dynamic balance; 4. sensory orientation; and, 5. gait characteristics. For the exploratory aim, independent t-tests were conducted to compare both pre- and post-fatigue states, and on and of medication states for all of the aforementioned balance domains. Results: There were no statistically significant interactions between time (pre and post) and medication (on and off) for anticipatory postural responses, adaptive postural responses, dynamic balance, sensory orientation, or gait characteristics (ps≥.187). Participants with BDNF Met alleles were not significantly different from Val/Val participants in balance or gait (ps≥.111) and response to a fatiguing condition (ps≥.070). Discussion: The results of this study suggest that fatigue does not have a detrimental effect on balance and gait in individuals with PD. Likewise, our results were also in line with other studies that suggest that PD medications are not effective for decreasing risk of falls due to postural instability. Lastly, these results also indicate that individuals with a BDNF Met allele are not at an increased fall risk after a fatiguing condition compared to those with the Val/Val genotype

The Calculus of M-estimation in R with geex

M-estimation, or estimating equation, methods are widely applicable for point estimation and asymptotic inference. In this paper, we present an R package that can find roots and compute the empirical sandwich variance estimator for any set of user-specified, unbiased estimating equations. Examples from the M-estimation primer by Stefanski and Boos (2002) demonstrate use of the software. The package also includes a framework for finite sample variance corrections and a website with an extensive collection of tutorials

The Market Reaction to Legal Shocks and Their Antidotes: Lessons from the Sovereign Debt Market

In October 2000 a hedge fund holding an unpaid debt claim won an enormous victory against the debtor, the Republic of Peru, through an opportunistic interpretation of the common pari passu clause by a Brussels court. This development was met by charges from policy makers and practitioners that the court\u27s decision (its novel interpretation of the pari passu clause) would lead to a dramatic increase in the risks of holdout litigation faced by sovereign debtors. Over the ensuing years, multiple reform solutions were proposed including the revision of certain contractual terms, the filing of amicus briefs in a key case, and the imposition of an international bankruptcy regime for sovereigns. The question, looking back, that this Article empirically investigates is whether the capital markets actually perceived a significant increase in risk at the time of the October 2000 Brussels court decision. Equally important is whether markets discriminate among competing versions of the pari passu clause based on their relative risks for holdouts. And, to the extent the markets did react to the increase in legal risk, did any of the antidotes that were implemented to reduce the supposed increased holdout risk work? We offer evidence that bond prices did respond to this legal shock, that markets do discriminate based on the relative holdout risk posed by differing forms of the pari passu clause, and provide surprising evidence regarding the efficacy of the government-sponsored antidote, the advent of collective action clauses

The market reaction to legal shocks and their antidotes : lessons from the sovereign debt market

This Article examines the market reaction to a series of legal events concerning the judicial interpretation of the pari passu clause in sovereign debt instruments. More generally, the Article provides insights into the reactions of investors (predominantly financial institutions), issuers (sovereigns), and those who draft bond covenants (lawyers), to unanticipated changes in the judicial interpretation of certain covenant terms

Experiences with and interpretation of standard test methods of building energy analysis tools

The authors separately apply ANSI/ASHRAE Standard 140-2001 to the simulation program TRNSYS, comparing not only their results but the differences in their simulation assumptions and in their interpretations of the Standard's test cases. Results of the application are presented for all three authors, showing that there is a significant amount of leeway within a complex simulation tool such asTRNSYS for users of different backgrounds to apply their own common simulating practices and still fall comfortably within the range of acceptability specified by such Standards. Included in the application results are results of sensitivity tests that demonstrate the relative importance of assumption differences

The Age Distribution of Massive Star Clusters in the Antennae Galaxies

We determine the age distribution of star clusters in the Antennae galaxies (NGC 4038/9) for two mass-limited samples (M > 3 x 10^4 M_{\odot} and M > 2 x 10^5 M_{\odot}). This is based on integrated broadband UBVI and narrowband H-alpha photometry from deep images taken with the Hubble Space Telescope. We find that the age distribution of the clusters declines steeply, approximately as dN/d\tau \propto \tau^{-1}. The median age of the clusters is ~10^7 yr, which we interpret as evidence for rapid disruption ("infant mortality"). It is very likely that most of the young clusters are not gravitationally bound and were disrupted near the times they formed by the energy and momentum input from young stars to the interstellar matter of the protoclusters. At least 20% and possibly all stars form in clusters and/or associations, including those that are unbound and short-lived.Comment: 11 pages, 2 figures. To appear in the ApJ Letters; Submitted 2004 July 29; accepted 2005 August